Tuesday, May 31, 2016

The Human (and Bottom Line) Cost of Bad Business Processes

One of the biggest costs in any business with employees is Human Resources - payroll, benefits, training and development, on-boarding and so forth.  With each of those areas, there are real, concrete dollars and cents attached.  Those costs can grow exponentially, though, if the processes used within those areas are poorly designed or are not in a state of continual improvement.

A good goal for employee turnover is between five and 10-percent.  Turnover rates tend to increase when business processes are out of date or ineffective.  You might be thinking, "So what?  I can always just hire someone else!"  That attitude is most often the cause of why processes break down without management paying attention.

The benefits of improving processes in a business are initially monetary.  A business operating more efficiently, with more automated processes, will make better use of its human and physical resources, requiring less time and resources to perform, which increases your bottom line.

Often missed, however, is how business process improvements can help with employee retention and morale.  According to an article on Xerox's "Simplify Work" website, "For most people, broken processes are one of the most powerful and most prevalent workplace morale killers.  Clunky, inefficient processes frustrate your people and undermine the idea you care about them."  In other words, better processes equal happier employees and lower turnover rates.

Again, you're probably thinking, "So what?  Losing an employee doesn't cost anything - it may even save me!"  Unfortunately, employee morale is considered a "soft" aspect of business; in fact, employee morale can be quantified in real dollars and cents.  The true cost of employee turnover is staggering; for each new employee brought into the company to replace one who left, the average cost is between $3,000 and $5,000 before that person even shows up for their first day.  Add in on-boarding, training and payroll costs, plus the cost of lost production because someone else has to temporarily take over the work of the employee who left, and you can be as high as half the annual salary of the position.

Not many companies can sustain a turnover rate above 10-percent for any length of time, especially small companies with less than 20 employees.  The best way to avoid high turnover, then, is to be in a state of continual process improvement.

Want more information on how a business process audit can help build your bottom line?  Download a copy of my white paper, "Business Processes and Their Impact On A Company's Bottom Line," here or email me here.